Market Update - October 28

The stock market started, and ended, this session on a softer note. There was a nice rally, however, that began around mid-morning as stocks climbed and Treasury yields, which had already been moving lower, declined further. Upside moves had the S&P 500 back above its 200-day moving average (4,235) after the index slipped below the 4,200 level right out of the gate, hitting 4,189 at its low.

The rally effort coincided with an X post from hedge fund manager Bill Ackman, who said he had covered his short in bonds because "There is too much risk in the world to remain short bonds at current long-term rates." The 10-yr note yield moved from 4.97% to as low as 4.84% following his remark and the S&P 500 hit an intraday high of 4,255.

The turnaround effort for stocks, however, faded in the afternoon session. The S&P 500 closed below its 200-day moving average, sporting a 0.2% decline. Relative strength from the mega cap space limited downside moves for the S&P 500 and Dow Jones Industrial Average while the Nasdaq Composite (+0.3%) closed with a small gain. The Invesco S&P 500 Equal Weight ETF (RSP) fell 0.6%.

Market breadth reflected a lack of conviction on the part of buyers that was related to rising tension in the Middle East, along with hesitation about where rates are headed and the pickup in earnings reports this week.

There was no U.S. economic data of note on Monday.

The S&P 500 broke a five-day losing streak and closed above its 200-day moving average (4,236). All the major indices closed with gains, albeit off their highs, driven by broad based buying. Stocks hit an air pocket, though, around 11:00 a.m. ET and pulled back to session lows.

There was no specific catalyst to account for the mid-morning pullback that coincided with some mega caps dipping into negative territory. 

The overall positive bias was partially a function of recent weakness stirring a rebound mentality. Participants were also digesting a slate of mostly better-than-expected earnings results from blue chip names.

Bank stocks were a pocket of weakness today related to lingering concerns about credit quality, deposit costs, and weakening loan demand.

Tuesday's economic data was limited to the preliminary October S&P Global US Services PMI, which climbed to 50.9 from 50.1, and Manufacturing PMI, which rose to 50.0 from 49.8.

Wednesday's trade brought many stocks lower, leaving the major indices near their lows of the day. The S&P 500 closed above its 200-day moving average on Tuesday, but opened below that key level on Wednesday before ultimately settling below 4,200. The disappointing price action itself acted as a downside catalyst, along with a jump in rates and a big loss in Alphabet (GOOG) following an earnings report that contained some relatively disappointing growth for its cloud business.

Microsoft (MSFT) was a winning standout after reporting some impressive growth for its Azure business, but other mega caps slid alongside Alphabet. 

General Dynamics (GD), Visa (V) and Waste Management (WM) also registered gains after impressing with their quarterly results while Boeing (BA) and Texas Instruments (TXN) saw sizable declines.

Yields were already moving up, but turned higher in response to the release of the September New Home Sales report, which showed the strongest annual rate of sales (759,000) since February 2022. Another wave of selling hit the Treasury market following a $52 billion 5-yr note sale that met dismal demand.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index -1.0%; Prior -6.9%
• September New Home Sales 759K (Briefing.com consensus 683K); Prior was revised to 676K from 675K
  • The key takeaway from the report is that new home sales activity in September picked up noticeably, aided by lower prices and reportedly mortgage rate concessions from builders.

Thursday's trade ended on a downbeat note. The biggest factor driving index level price action was relative weakness in the mega cap space. Meta Platforms (META) logged a sizable decline after reporting better-than-expected earnings and relatively disappointing guidance.

Market participants were also digesting a heavy news flow that included a slate of earnings reports, Israel staging a raid on Gaza in preparation for next stages of the war, Ford (F) and the UAW reaching a tentative agreement, the ECB leaving its corridor of key interest rates unchanged following ten consecutive rate increases, and a batch of economic data before the open.

Treasury yields moved lower in response to the data, but stocks did not react positively to that development.

The S&P 500 fell to 4,127 at Thursday's low, which was a 10% pullback from the July 31 closing level. Buyers showed up there, however, to offer some support and help the major indices climb off session lows. The bounce stalled out, though, with about an hour left in the session. Renewed selling activity had the S&P 500 close just above "correction" territory.

Still, the broader market was showing signs of resilience.

Reviewing Thursday's economic data:

• Weekly Initial Claims 210K (Briefing.com consensus 210K); Prior was revised to 200K from 198K; Weekly Continuing Claims 1.790 mln; Prior was revised to 1.727 mln from 1.734 mln
  • The key takeaway from the report is that the level of initial jobless claims does not suggest the labor market is weakening in a material way at this juncture.
• September Durable Orders 4.7% (Briefing.com consensus 1.5%); Prior was revised to -0.1% from 0.2%; September Durable Goods - ex transportation 0.5% (Briefing.com consensus 0.3%); Prior was revised to 0.5% from 0.4%
  • The key takeaway from the report is that business spending continued to increase, evidenced by the 0.6% increase in nondefense capital goods orders excluding aircraft.
• Q3 GDP-Adv. 4.9% (Briefing.com consensus 4.0%); Prior 2.1%; Q3 Chain Deflator-Adv. 3.5% (Briefing.com consensus 2.7%); Prior 1.7%
  • The key takeaway from the report is that the Q3 GDP report was nearly every bit as much as what the Atlanta Fed GDPNow model estimated it would be (5.4%), which is to say economic activity surged in the third quarter on the back of the consumer, shedding some objective light on why the Fed remains inclined to keep rates high for longer.
• September Adv. Intl. Trade in Goods -$85.8 bln; Prior was revised to -$84.6 bln from -$84.3 bln
• September Adv. Retail Inventories 0.9%; Prior 1.1%
• September Adv. Wholesale Inventories 0.0%; Prior -0.1%
• September Pending Home Sales 1.1% (Briefing.com consensus 0.5%); Prior -7.1%

The major indices all closed near session lows. Negative price action had the S&P 500 (-0.5%) test the 4,100 level, hitting 4,103 at its low. Friday's close marked a 10.3% decline in the S&P 500 from the July 31 high (i.e. a technical correction). Meanwhile, a big gain in Amazon.com (AMZN) following better-than-expected earnings and guidance helped support the Nasdaq Composite, which closed with a 0.4% gain.

Other mega caps outperformed alongside Amazon, as evidenced by a 0.5% gain in the Vanguard Mega Cap Growth ETF (MGK). Semiconductor stocks were another pocket of strength after Intel (INTC) beat earnings estimates. The PHLX Semiconductor Index climbed 1.2%.

Just about everything else aside from mega caps and semiconductor stocks declined. Eight of the 11 S&P 500 sectors decline with six of them registering losses larger than 1.0%. The energy sector (-2.3%) was the worst performer by a wide margin thanks to losses in Chevron (CVX) and Exxon Mobil (XOM) after they reported earnings.

The financials sector (-1.9%) was the next worst performer, weighed down by a loss in JPMorgan Chase (JPM) after CEO Jamie Dimon confirmed that he and his family plan to sell a portion of their holdings.

The negative bias was partially driven by geopolitical angst after reports that the US carried out airstrikes against Iranian backed targets in Syria, and separate reports that Israel is expanding ground operations in Gaza. Participants learned about those developments ahead of the weekend when market's are closed for trading and investors can't react in real-time.

Reviewing Friday's economic data:

• September Personal Income 0.3% vs Briefing.com consensus of 0.4%; Prior 0.4%; September Personal Spending 0.7% (Briefing.com consensus 0.5%); Prior 0.4%; September PCE Prices 0.4% (Briefing.com consensus 0.3%); Prior 0.4%; September PCE Prices - Core 0.3% (Briefing.com consensus 0.3%); Prior 0.1%
  • The key takeaway from the report is that the PCE Price Index and the core PCE Price Index had a sticky feel to them, meaning they lacked a stronger trend of disinflation. That is apt to keep the Fed in a more hawkish mindset, which doesn't mean the Fed will be moved to raise rates soon. What it does mean is that the Fed won't be thinking about a rate cut anytime soon.
• October Univ. of Michigan Consumer Sentiment - Final 63.8 (Briefing.com consensus 63.1); Prior 63.0
  • The key takeaway from the report is that the decline relative to the final September reading was owed to weakening sentiment among higher-income consumers and those with sizable stock holdings. Furthermore, expected business conditions weakened among all consumers and year-ahead inflation expectations jumped back to a level last seen in May.